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Wednesday, 14 November 2012

Indonesian Court Shuts Down Oil and Gas Regulator

Indonesia’s Constitutional Court has ordered the country’s
oil and gas regulator BPMigas to shut down, throwing international energy
investors into confusion and raising concerns that the verdict could curb
revenue from crude oil and gas exports and hamper future international
investment.

The suit was brought by 42 organizations and individuals to
review the 2001 law that brought the regulator into effect. The plaintiffs
included Muhammadiyah, one of Indonesia’s largest Muslim groups, and business
organizations. Under the terms of the 2001 law, BP Migas’s job was to grant
rights on production-sharing contracts to oil and gas producers to explore for
oil and gas. Most of those contracts are with multinational producers.

The court declared that the existence of the regulatory
agency degrades state control over natural resources and was therefore
unconstitutional since BP Migas didn’t directly manage oil and gas, instead
handing it over to state-owned companies or private companies through
cooperation contracts. That mechanism, the court held, limits access for the
state to maximize the benefits of natural resource management for people’s
welfare.

The decision is the latest in a growing series of actions by
the government or the courts that appear designed to limit the participation of
foreign companies in Indonesia’s economy. The hostility to foreign control of
Indonesian natural resources has largely been aimed at mining companies,
through regulations such as a ban in April on unprocessed metal-ore shipments,
with an exemption for producers that process output inside Indonesia.